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Mark's Market Blog

11-24-13: Iran and the US: courting.

By Mark Lawrence

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Another week, another new record level for the markets. Bears are disappearing everywhere. More and more bears are giving it up and proclaiming themselves bulls. We're nearing the end. Soon, perhaps January, perhaps March, the Fed will start to scale back on tapering. Historic wisdom - the bull run isn't over until the last bear has disappeared - would seem to indicate that things will get very ugly very quickly when the Fed cuts back.

S&P 500 June 5 2013 to November 22 2013

Announced today was a short-term deal between Iran and the US - nukes for trade. Iran will stop enriching uranium beyond the 5-percent level (nuclear power plants typically run on 3.5 percent-enriched uranium), refrain from installing new centrifuges for uranium enrichment, and dilute or convert to oxide its stockpile of 20 percent-enriched uranium (a level that allows Iran to quickly enrich uranium to the weapons-grade threshold of 90 percent). It will also refrain from producing fuel for or operating its heavy-water reactor near the city of Arak, which experts believe could produce weapons-grade plutonium. International monitors will be granted expanded access to Iran's nuclear facilities. In response, world powers will offer Iran billions of dollars in sanctions relief. Here's what the deal is really about: this is nearly as big as Nixon going to China, when we mutually decided we were better off in a 3 power world than with Russia able to quickly overrun their choice of Europe or China. Today the US is an oil exporter - yah, maybe only a couple gallons a month, but that's huge. It means we no longer have to cozy up to Saudi Arabia, who in the end is the country most responsible for 911 and who's Wahabi form of Islam is responsible for much of the world's terrorism. Similarly Russia is consumed with their own homeland and border problems so we no longer need Israel as a buffer to Russian expansion in Persia. Iran just last year thought they were in ascendency with seemingly lots of influence in Iraq, Egypt, Syria, Lebanon; but these days it seems no one is in control of any of these countries. And Iran's people have had more than enough of sanctions. With this deal the US is beginning the realignment of our interests in the gulf region, leading us back to our long time and more natural ally Iran, freeing us from being BFFs with the much more distasteful regimes in Pakistan and Saudi Arabia, and Iran starts on their plan B to be the dominant power in the gulf. Israel meanwhile seems to have been sent to the children's table for Thanksgiving dinner - we don't need them so much if Iran is an ally, and Obama doesn't like them at all. Today's deal just buys time for a longer term more detailed deal, but I expect that to happen some time next year - Iran and the US need each other as friends more than we can tolerate each other as enemies..

Switzerland votes today on two radical ideas - the first, to limit executive pay to 12 times the pay of the lowest paid worker. Currently executive pay in Europe and the US is more like 100 to 200 times the pay of the lowest paid works. The second would give every adult in Switzerland a monthly check of about $2500, a guaranteed income for everyone. There is widespread disagreement on what this would do to people's work habits. Both measures look to fail based on early results. But then so did gay marriage for the first 25 years. These ideas will be sticking around, imho.

Pretty much everyone agrees that China has to become more of a consumer economy and rely less on exports. Meanwhile they have 51+ million unmarriageable men, which means the competition for a wife has stepped up. Women are changing their expectations - on a Chinese dating show, one woman famously said, "I'd rather cry in a BMW than smile on a bicycle." Owning property is now more or less a requirement to get a wife, meaning to eventually bring home a grandchild. So families with male children are saving even more money to buy an apartment, to get their son a college degree, to start a business. China's savings rate is going up and their consumption is dropping - men simply don't spend money like women do, and now the whole family of the man has a strong incentive to save more. David Ogilvy famously said, "The consumer is not an idiot. She's your wife." As there are fewer and fewer wives in China we're seeing there are fewer and fewer consumers.

Airbus spent $15b developing the A380, a plane about 15% larger than the largest 747. It's been around for a few years, and it's now looking unlikely to ever earn a profit. Fully half of all the orders have come from Emirates airline, a Dubai company that uses it to fly huge numbers from Europe to its Dubai hub, or from Dubai to one of the big Asian airports. Dubai is also building a new airport with the intent of quadrupling their passenger traffic. 747s are also selling slowly, but that plane's development costs were paid off decades ago. The big winner in plane sales right now is the 777, a plane I've never flown on.

The government is selling off their last shared in GM by the end of the year. The GM bailout was $51b; the feds made $38.5b on the stock. If you figure that 150m of us actually work and 75m of us pay some sort of taxes, then each of us taxpayers gave about $165 to the UAW. I dunno about you, but I feel all special and christmassy.

JC Penny's has been dropped from the S&P 500. Many think their days as a viable business are numbered, and that soon they'll go the way of Blockbuster and Borders. I think the movement of women into the workplace has been very hard on brick and mortar stores, as working women don't have much time or energy to shop. Also, since fewer and fewer moms are married, there are fewer and fewer wives, so according to Ogilvy there are fewer and fewer consumers.

J.K.Rawling, welfare single mom turned billionaire, has announced she's working on Harry Potter #8. I must admit that I will both buy it and read it. .

I'm building myself a new Computer Numerically Controlled Laser (CNC Laser). I built one of these eight years ago when I was young(er) and dumb. Now after several thousand hours of experience, older but still dumb, I'm going to build a substantially improved model. Eight years ago the commercial lasers that fit my requirements cost about $85,000; it cost me about $14,000 to build mine. My 2nd generation laser will have 40% more power, 67% more cutting area, will be significantly faster and more stable and require significantly less operator attention. This laser looks to cost me about $3500. After my new laser is complete I expect to rip apart my old laser and upgrade it. Then I expect one person will be able to operate both, doubling productivity, halving employee requirements. This is the future of manufacturing, it's getting much easier and cheaper to automate production. One of my biggest problems is I need a computer to control it, and that computer cannot run Windows 8. All the important machine control software doesn't work under Phone&Tablet Windows, and in any case I still can't figure out how to run Windows 8. Neither can my 20-something kids - it's not just me. So I'm having to buy reconditioned older computers on Ebay from the Dell outlet store. If you want to continue to live your life in Windows XP or Vista, best get a backup computer soon before they're all gone forever. Microsoft wants to move us all over to Windows 8 so that later they can turn on their control chip and we'll have no alternative.

It's been three weeks - 21 days - since I moved my email to Gmail. My Gmail spam box has 2214 spams in it. I've had perhaps a dozen false negatives in that time - spams that slipped through - and as I recall only a single false positive. I've tracked my email by hand and I've personally had 2 false negatives and 4 false positives. Gmail is better than I am.

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